As of July 6, 2009, there have been 120 lawsuits filed in the federal district courts and two in the state courts of Florida as a result of defective drywall imported from China between 2004 and 2008. Cases have been filed in the following states: Louisiana (73), Florida (40), Alabama (3), Virginia (2), Ohio (1), and North Carolina (1). The cases involve a myriad of plaintiffs and defendants, all seeking redress in connection with the rotten egg smell and corrosive sulfur gasses emitted from the drywall when it is exposed to heat and humidity, also referred to as “off-gassing.” Several reports have estimated that the defective drywall has been installed in as many as 100,000 homes in 41 states. Occupants of these homes complain of property damage and a variety of health symptoms, including nose bleeds, respiratory problems, headaches, nausea, and skin itching that disappear when they leave their homes and come back when they return.
A report dated March 17, 2009 prepared on behalf of the Florida Department of Health concluded that there is a distinct difference between drywall manufactured in the U.S. and that manufactured in China. When heated and subjected to moisture, the Chinese drywall emits Stronium Sulfide and other sulfuric gasses. The Chinese drywall also contains higher concentrations of organic matter than that of its U.S. equivalent.
The impact of Chinese drywall upon the insurance industry is expected to be significant both in the context of first and third party claims. Already, one complaint has been filed against a homeowners' carrier challenging the carrier's denial of coverage, based on the pollution exclusion, for damages caused by “off-gassing.” The coverage issues will be complex, and will routinely involve questions of when and how certain insurance policies are triggered. For example, has there been an "occurrence" as defined under common insurance policy forms? And if so, did it take place: (1) when the drywall was installed, (2) when it started emitting the allegedly harmful sulfide gas, (3) when the homeowner first discovered there was a connection between the alleged harm and the Chinese drywall, or (4) some other time?
Several exclusions may preclude coverage, such as the pollution exclusion and the defective workmanship exclusion. The “your work,” "your product" and contractual liability exclusions may bar third party coverage to builders and trade contractors and others. The sistership exclusion could potentially come into play, particularly in lieu of the fact that several lawmakers are proposing legislation for a mandatory recall.
Plaintiffs asserting personal injury claims should expect to face significant challenges when trying to establish causation. To date, there is no meaningful science directly linking the cause of alleged personal injuries to the Chinese drywall. According to at least one nationally recognized environmental and air quality expert, there has been no evidence linking any actual health dangers to humans.
Failure to mitigate damages will also be a major issue in property damage cases, as defendants may argue that plaintiffs failed to take appropriate action to prevent or control off-gassing. Parties will try to shift liability to others. For example, builders may argue reliance upon an architect’s specifications or assert claims against suppliers. Suppliers will blame the manufacturers and the manufacturers may file claims against architects and builders.
The parties to litigation will assert various factual allegations and defenses, including that there was improper ventilation in the building cavities, improper vapor exhaustion designs and faulty placement of HVAC equipment. Designers and builders may be accused of specifying the wrong type of drywall for warm and humid climates (or not knowing that a difference existed) and various parties may assert that the drywall contains defective anti-fungal or anti-bacterial treatments, possibly implicating those manufacturers and applicators. There may also be a focus upon fireproofing additives and other products applied to the drywall. This litigation also threatens to spread to many trades and other products installed in the homes other than drywall, including caulking, exterior sheeting and adhesives. Manufacturers and installers of electrical and HVAC systems may also be implicated.
To date, most of the cases filed are seeking class action status. In order to be certified, the plaintiffs will need to show that the use of Chinese drywall was typical among class members. There will be difficulty proving damages on a class-wide basis because even if drywall is proven to be defective, many potential class members may never sustain injury. Federal Rule of Civil Procedure 23(b)(2), relating to injunctive certification, will come into play and we could even see class action cases being asserted directly against the insurance industry.
From coverage, to reinsurance, to third-party defense and subrogation, NLdH is positioned to handle every need of insurance carriers in connection with the Chinese Drywall crisis. For more information, contact Mike Nelson, Michael Hamilton, or John Mullen at 215.358.5100.
Related Articles:
Insurers Could Be Named In Drywall Suits: Legal Expert, National Underwriter P&C, April 21, 2009. To read the entire article, click here.
